Insurers limiting coverage of damage in New Jersey

(MCT) — HACKENSACK, N.J.—Many New Jersey homeowners may be faced with bearing the brunt of costs to repair damage caused by Sandy, according to a consumer advocate.

Insured losses will run into the billions of dollars, and some flood victims have no flood insurance, and those suffering wind damage may face higher deductibles and limited coverage because insurers have taken steps to limit their exposure as extreme weather events become the norm.

“We are concerned families will have to dig deeper into their pockets because insurers have been steadily shifting liability to consumers by increasing hurricane wind coverage deductibles and imposing other policy limitations,” said J. Robert Hunter, director of insurance for the Consumer Federation of America, based in Washington, D.C.

Although the New Jersey commissioner of banking and insurance has ruled that expensive hurricane deductibles will not apply in New Jersey for this storm, “there are limits on replacement costs and other new limits in coverage that will be unexpected by many,” said Hunter.

While much of the damage from Tropical Storm Irene, which hit New Jersey in August 2011, was caused by drenching rains that sent inland rivers over their banks, much of the destruction from Sandy is from an unprecedented storm surge in tidal areas.

In both cases, affected homeowners must have government flood insurance to be covered for the damage caused by the water.

The National Flood Insurance Program paid out $1.28 billion from Irene; flood claims from Sandy are expected to be higher.

But the NFIP coverage, which is generally provided through private insurers, is less generous than it was in the past, and premiums will get much costlier in the years ahead, increasing by as much as 25 percent this year for some property owners.

“Flood insurance is not truly an indemnity policy,” said Lydia Bashwiner, general counsel and claims manager for Otterstedt Insurance Agency in Englewood Cliffs. It won’t pay for most damage in finished basements, for example, and “it won’t pay to put you up in a hotel,” she said. “But it’s the best we have.”

“The flood insurance is very restrictive; it’s not a great policy,” said Alan Geisenheimer, owner of Geisenheimer Agency in Fair Lawn.

Geisenheimer had to run a generator, acquire wireless Internet service from Verizon and switch business calls to his wife’s cell phone to get his business up and running Wednesday to accept claims from customers.

The claims pouring into the Otterstedt Agency on Wednesday were very similar to types of claims filed in the aftermath of Irene in 2011. But instead of claims related to inland flooding, they include “a lot of flood claims in coastal areas and on the Hackensack River,” Bashwiner said.

State Farm, the top home insurance underwriter in New Jersey, insuring one in every eight homeowners in the state, as of Wednesday afternoon received 24,000 Sandy-related homeowner claims in the mid-Atlantic and northeastern states, as well as 3,000 auto claims.

“We expect the number will go up as folks get into areas that were inaccessible and as power comes up,” said State Farm spokesman Dave Phillips.

The insurers with the most exposure to property damage from Sandy in New Jersey include State Farm, Allstate, Travelers, Chubb and Liberty Mutual.

“The insurance industry response to Irene was very good,” said Marshall McKnight, spokesman for the state Department of Banking and Insurance.

The regulator said it received 498 written consumer complaints about insurance companies’ response to Tropical Storms Irene and Lee, which hit New Jersey in the summer of 2011. The regulator said 402 were flood-related, with customers complaining of problems such as processing delays and claim denials.

Of the 498 written complaints, only 27 were deemed valid by the department, meaning the insurer violated state insurance rules or laws or that the issue should have been resolved by the insurer without the department’s intervention.

“Sometimes there may have been confusion over what was covered,” McKnight said. “There were no administrative actions related to the storm.”

State Farm, the top homeowners’ underwriter in New Jersey, ranked sixth this year among 15 home insurers rated by Consumer Reports with a score of 80 out of a possible 100, based on satisfaction with the amount of damages paid, agent availability and timely payment. Allstate Insurance, the state’s second-largest underwriter, tied with Farmers Insurance — which has a smaller presence in New Jersey — for last place with a score of 77.

State Farm’s customer complaint ratio is 0.51, according to the National Association of Insurance Commissioners, which means State Farm gets more than three times as many complaints as New Jersey Manufacturers. NJM had a complaint ratio of 0.15. Allstate had a ratio of 0.77, the worst among New Jersey’s top five homeowner underwriters.

Hunter said consumers should be aware that some insurers may not cover full replacement costs on homes that were destroyed if labor and material prices surge with demand.

And some insurers use “anti-concurrent causation” clauses in their policies that attempt to shield them from wind damage claims if a flood happens at the same time. “These are really draconian” provisions and can often be successfully challenged in court, Hunter said.

Regular homeowner policies do not cover floods, earthquakes, or food spoilage from power failures. Tree removal is covered but only if the tree lands on the home or on a garage or other outbuilding that is also insured.

“Not all insurance companies handle claims badly, so go into the claims process with an open mind,” Hunter advises.